Contra Costa governments that fail to set aside money for future retirees’ medical costs should prepare for a tidal wave of layoffs and slashed services, according to a report released today.

Nibbling away at huge costs by paying only today’s bill is “grossly inadequate” and could result in tax increases and hamper the regional economy, the report says.

Contra Costa County’s bill will rise to $2.6 billion during the next 30 years, the equivalent of shutting down all county services — including fire stations, libraries, the hospital and health clinics — for two years.

“Public entities need to address this growing problem now,” according to the report, funded by the Contra Costa Economic Partnership, which is closely affiliated with the Contra Costa Council, a business advocacy group.

Elected officials must “provide a competitive compensation package without reducing the current level of services or adversely affecting their credit rating.”

That’s no small task. For decades, many government agencies have promised their employees lifetime health care benefits without devising a way to pay for them.

Soaring health care costs combined with public employees retiring earlier and living longer are increasing the bill as baby boomers end their careers. Now, with new federal accounting standards requiring disclosure of that bill for the next 30 years, elected officials are just beginning to grasp the challenge.

If unchecked, agencies may have to cut public services to pay medical premiums for retired workers.

“It’s something all jurisdictions should be taking very seriously,” said Pittsburg City Manager Marc Grisham. “You need to look at how the decisions you make today will affect you later. It may not hit you for five to 10 years, but it will hit you.”

To save money, Pittsburg this summer reduced retiree health care benefits for future employees represented by the Teamsters. New employees must have 15 years of city service to become eligible for retiree medical benefits, instead of the previous five-year vesting period. The city is negotiating similar moves with its other employee unions.

Nine cities — Clayton, Danville, El Cerrito, Hercules, Lafayette, Moraga, Oakley, Orinda and Walnut Creek — have no liability because they do not pay for retired workers’ medical benefits. But other jurisdictions that offer benefits are grappling with how to pay for them.

Contra Costa County, which has offered lifetime health benefits to its employees since 1961, is deciding how to pay those bills without major service cuts.

“It’s a delicate and difficult balance,” said Mary Piepho, chairwoman of the county Board of Supervisors.

“It’s critical we fix potholes and we have sheriff’s deputies in the field, and it’s critical we address (retiree health care). It’s our top priority. But this issue was built over four-plus decades, and getting out of it overnight is not going to happen.”

In June, the supervisors agreed to set aside $588 million during the next 16 years without making budget cuts. To close the remaining $2 billion gap, County Administrator John Cullen will negotiate reduced health benefits and budget reductions — or a combination — with unions.

Options range between two extremes — from making retirees pay substantially more for their medical premiums to making cuts that could require laying off more than 1,000 employees.

Failing to take action now “will eventually result in tradeoffs between paying for retiree health care premiums versus employee layoffs, declining levels of service, deferred maintenance and higher borrowing costs,” said the partnership’s report, written by Lafayette economic consultant Gary Craft.

This year, Contra Costa County will pay $33 million to cover costs incurred by its retirees. That’s far short of the $227 million that a county consultant determined should be set aside annually to help cover health care costs for about 8,500 retirees.

Although nearly every county in California offers retired workers some type of medical benefit, such perks are rare for school district employees. That makes the West Contra Costa Unified School District one of the few to give its employees lifetime health benefits.

Since 1965, the district has fully covered health insurance premiums for its employees and retirees. During the next three decades, that translates into a $705 million liability — more than double the school district’s annual budget.

The problem is compounded for West Contra Costa because voters on Aug. 28 declined to extend a parcel tax that expires in 2009. That will mean $10 million in cuts from its $267 million budget and the prospect of closing schools and laying off employees.

Public agencies in better shape today can avoid such tough decisions later by tightening their budgets and setting aside money for retiree medical costs, said Contra Costa Council CEO Linda Best, who also is the economic partnership’s executive director.

“This is under the radar screen for most folks, and it has very large implications for taxpayers and local governments,” she said.

“I hope (the report) raises everyone’s awareness of this issue and prompts jurisdictions to respond. This is something we have to get our arms around.”

(Click here if you are unable to view this photo gallery on your mobile device) The Ruth Bancroft Garden in Walnut Creek celebrates the life of its founder Ruth Bancroft who died at 109 on November 26, 2017. The Ruth Bancroft Garden is a nonprofit public dry garden that was planted by Mrs. Ruth Bancroft in 1972 and was opened to the...